The MBA reported that independent mortgage banks saw their profit per loan take a tumble during the first quarter, down about $500 per loan versus the fourth quarter of 2012. The average production profit (net production income) was 86 basis points, and secondary marketing income was 274 basis points in the first quarter, with the "net cost to originate" a loan coming in at $4,182 in the first quarter. The MBA's data is derived from the Mortgage Bankers Financial Reporting Form that accounting firms that specialize in mortgage banks help compile, and the MBA's uses the data for about 300 companies. All the numbers can be seen HERE.

Here at the Mortgage Bankers Association of Hawaii Annual Conference, the talk is revolving around the rate move, and its impact on production. But another side of that is its impact on the secondary markets. Any time there is a dramatic rate move one way or the other, Secondary Marketing personnel are very focused on watching loan deliveries to investors. (And let us not forget warehouse banks worried about underwater pipelines, and wanting to ensure that they are hedged!)

On one end of the spectrum I've seen, "We are worried about not having enough Fannie 30-yr 3% hedges to cover the remaining 3.25 - 3.75 note rate loans in our pipeline that are still in docs status. Now we're primarily in to the Fannie 30-yr 3.5% and 4% security hedges now and we're opening up the 4.5% mortgage coupon today for locks. There's not much concern over the 4.5 coupon other than us having to watch it closely if the market turns around."

And I have also heard, "We never dipped down into the 2.50% coupons, but are definitely shifting hedges we can't fill from 3% coupons to higher security rates. Not only do we want to avoid any short squeezes, but we're also working with investors not to close out those lower coupons and have to beg for off-sheet pricing both on the low end and the high end of our production range." So yes, a volatile market impacts both ends of the mortgage banking flume.

Neither of my kids, or it seems their friends, have credit cards. Or want them. Let's see how the credit reporting agencies, and in turn the underwriting policies and procedures, deal with that trend! Because as Bart B. pointed out to me a couple days ago, the press has noticed the lack of credit card use by people under 29 (read more HERE). Although it doesn't mention mortgages, by extension one can see that mortgages for these individuals may be a very big challenge. Back when many of us started in the mortgage industry, no credit was presumed to be good credit. Maybe that notion will be revived.

Phil Brewer, the National Underwriting Manager for Peoples Bank, mentioned above, writes, "No credit is most definitely better than 'bad credit'. Revolving debt is both a blessing and a curse.  If used correctly - payments made on time and the balance maintained at 50% of credit limit or less, it is a blessing and helps improve the credit score.  The flip side is that if the payments are not made on time, or if the balance is constantly at the max or near the max, it will drive down the credit score. Credit Agencies do look for and build the credit score based on a 'good' mix of credit types. What or who defines 'good' is an interesting question, but it is built into their scoring mechanism. 

"Revolving debt is like the old saying: 'Lenders only want to lend to those who don't need it.' The Credit Agencies want you to have revolving debt but they don't want you to use it. We are beginning to see an increase in the need to use non-traditional credit references, which in turn only slows down the process and makes the approval harder and more selective." Probably not the same for jumbo - Gail D. noted that, "As far as Jumbo financing is concerned yes, this is true that having little to no credit is hurtful.  In fact most, if not all, investors require a certain number of open and active trade lines for qualification."


Bank and Investor News.

KBW announced that, "BANK'34 and its parent corporation Alamogordo Financial Corp. (OTCQB: ALMG), headquartered in Alamogordo, New Mexico, and Bank 1440 (OTCQB: BFFO), headquartered in Phoenix, Arizona, jointly announced the execution of an agreement and plan of merger for the two community banks." Where the heck do they come up with these names? I guess everyone wants to be 5 3.

Wells Fargo is now publishing standard Non-Conforming pricing to its rate sheets, along with pricing that reflects the Preferred Payment Plan option, which gives a 25bps discount for using an ACH payment from a Wells checking or savings account.  This will be included on page three of rate sheets going forward.

Effective July 15th, Wells will be changing its policy on Gifts of Equity for Conventional products to require the borrower to have made the minimum down payment out of their own funds before using the funds in question.  This replaces the previous policy, under which borrowers had to prove that they had at least 5% of the property sales price in savings but were not required to use it towards the down payment.  Donors are still required to provide gift letters.

Per recent GSE policy changes, Wells will be discontinuing the 5/2/5 cap structure for its 5/1 ARM products and replacing it with a 2/2/5 structure.  Anything Best Efforts that was locked prior to August 19th are required to be 5/2/5, as are Mandatory commitments, AOTs, and spec pools; however, loans locked with the current cap structure may be extended past that date if necessary.

Gateway Mortgage Group LLC, one of the largest privately held full-service mortgage companies in the country, has announced the roll out of a non-delegated correspondent division to complement its existing delegated correspondent channel. 

US Bank is now offering up to $3m financing on its Conventional Non-Conforming, Elite LIBOR ARM, and Elite Treasury ARM products at 60% LTV on primary residences, with loan amounts between $2,000,001 and $3m subject to a pricing adjuster of -.500.  Financing of up to $1.5m is available for 1-unit second homes at 65% LTV as well.

Nationstar has updated its DU Refi Plus and LP Open Access guidelines to cap DTI at 55% for Approved Eligible/Accept AUS recommendations on loans with FICO scores of 720 and above.  A 115% LTV/CLTV cap will apply to all HARP loans with FICO scores of 680 or less, while LTV/CLTVs up to 125% will be permitted for scores of 700 and above.  For all new registrations, Nationstar will be publishing separate pricing for Refi Plus and Open Access loans with LTVs between 105.01-125%, and all HARP products will have unique note rate adjusters and trade at a published spread to FNMA and FHLMC TBA securities.  HARP loans are also required to be allocated and sold in HARP-only commitments.

Nationstar is now eligible to serve as an Institutional Sponsor for Fannie's Desktop Originator.  To register, use the Desktop Originator Online Registration form, available via the Fannie website, or, for existing users, complete the "Add New Sponsoring Lender" process through

Fifth Third is now requiring that all ARMs, regardless of mortgage term, be covered by a minimum 12% mortgage insurance policy.  Between the AUS findings and what is listed in the Fifth Third product guidelines, underwriters should use the more restrictive stipulation; as a reminder, only fixed mortgages with LTVs between 80-85% and loan terms of 20 years or less are eligible for 6% coverage, and reduced coverage insurance is not permitted under any circumstances.

Fifth Third has updated underwriting guidelines such that contingent liabilities paid by businesses can be excluded from a borrower's debt if documentation is provided verifying the most recent 12 months' payments have been made from the business account.  The debt should be reflected as a business expense on Schedule C of the borrower's tax return or in the liabilities section of the business tax returns, and if the debt is a mortgage secured by the primary residence, it is required to be disclosed as a liability in order to correctly calculate the monthly housing expense to income ratio.

PennyMac has aligned its guidelines on documenting Down Payment Assistance funds provided by government entities with those of the FHA, which require the loan file to include a cancelled check, evidence of wire transfer, or similar draw request that reflects the transfer of funds.  A letter from the entity in question that has been signed by an authorized official attesting that the funds belonged to the entity before closing will also suffice.  This applies to all FHA loans closed on or after July 1st.

As of June 18th, PennyMac has changed its delivery variance for Mandatory forward and bulk trades from the previous limit of 2% to the lesser of 2% of the commitment or $100,000.Beginning on July 1st, PennyMac will no longer be purchasing VA and FHA loans on 2-4 unit properties in New Jersey.

(By the way, a while back Wells Fargo made the same move in New Jersey, rumored to be due to fraud issues.)

Sure enough, fixed-income prices improved following the disappointing 1st quarter GDP. Many analysts have been talking about the market reaction being overdone, and yesterday the QE3 chatter simmered down and the focus was on the 1.8% GDP number (the prior estimate showed an annual increase of 2.4%). This helped rally Treasuries, with the 10-year note gaining about .5 in price, and agency mortgage-backed securities by .250-.50. And originators continued their recent light sales volumes: around $1 billion.

It is darned early here at the MBA Hawaii conference (basically the middle of the night), but we've already had Initial Jobless Claims (expected lower to 345k from 354k, they were -9k to 346k from a revised 355k), Personal Income for May (expected +0.2% from flat, it was +.5%), and Personal Consumption (expected +0.3 from -0.2, it was indeed +.3%). At 7AM PST are Pending Home Sales Index (May), which is expected to increase to 1 from 0.3, and then later a $29 billion 7-year note auction. The 10-yr. T-note yield, which ended Wednesday at 2.54%, in the early going is 2.49% and agency MBS prices are slightly better.

(Remember when this joke was closer to the truth?)

The head of HR at a small mortgage banking firm had so many urgent tasks on her plate that she had almost no time to do thorough in-depth interviews.

Given this challenge, she developed a "one minute interview". Her first candidate was an accountant. She explained that she did not have a lot of time, so this would be a very short interview. She then asked him

"How much is one plus one?" He thought for a moment and answered, "If you are using an absolute basis of accounting, then one plus one, using an absolute basis, equals two".

She thanked him and then brought in the second candidate, a woman who was a applying for a position as a loan officer.

She explained the time constraints and then also asked her, "How much one plus one?"

She answered, "Two!"

In turn she too was thanked for her time, and the final candidate for the day was brought. He was an appraiser. She said, "This is going to be a very short and simple interview, how much is one plus one?"

The Appraiser paused and thought for a moment, then asked the head of HR, "What number did you have in mind?"